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In his prepared remarks, Senate Banking Committee Chairman Christopher Dodd (D-CT) indicated that failure to provide congressional support to the auto industry would result in consequences that “would be severe and sweeping,” emphasizing the job losses that would be faced not only by various players in the auto industry, including employees of the Big Three automakers, auto suppliers, and auto dealers, but also by all other businesses, “from restaurants to garages – that in ways large and small depend on a domestic auto industry for their livelihoods.” According to Chairman Dodd, the failure of the domestic auto industry would have “ramifications far beyond manufacturing and pensions,” affecting “virtually every sector of the economy,” and would “unquestionably worsen the credit crisis,” as the Big Three have hundred of billions in outstanding debt liabilities and hold billions in credit default swaps. While Chairman Dodd noted that he believed that the restructuring plans submitted by the Big Three “still leave many questions unanswered,” allowing any one of the Big Three to fail would be “to play Russian roulette with our entire economy.”

In his prepared remarks, House Financial Services Committee Chairman Barney Frank (D-MA) largely echoed Chairman Dodd’s sentiments, stating that allowing the Big Three to file for bankruptcy would “greatly exacerbate the credit crisis” and “be an unmitigated disaster.” At both hearings, executives of the Big Three discussed how each of their companies’ plans to ensure their future viability, largely reiterating the details of their restructuring plans submitted earlier this week. The executives restated their requests for an aggregate of $34 billion in federal bridge loan assistance, while emphasizing their commitment to restructure their businesses.

In his testimony, Acting Comptroller General Dodaro identified the following three fundamental principles that should serve as a framework for Congress in considering providing assistance to the auto industry: (1) identifying and defining the problems facing the auto industry, including separating out problems which require an immediate response from structural challenges that may take longer to address; (2) determining whether the national interest would best be served through a legislative solution or by allowing market forces and established legal procedures, such as bankruptcy, to run their course; and (3) protecting the government’s and taxpayers’ interests by setting appropriate mechanisms, such as concessions by all parties with a stake in the outcome (including management, labor, suppliers, dealers, and creditors), controls over management, compensation for risk, and a strong independent board. If Congress believes that a legislative solution is necessary to address the problems of the auto industry, Dodaro suggested Congress follow a two-pronged approach by (1) authorizing immediate, but temporary, financial assistance to the auto industry, and (2) concurrently establishing an oversight board to “approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight.”

The various association representatives generally voiced their support of government assistance for the domestic auto industry, noting the adverse impact that would be felt by auto workers and retirees, auto dealers and auto parts suppliers, while emphasizing that such assistance would not be a bailout of the industry, but rather as an investment in the economy as a whole. The academics remained divided as to whether Congress should provide federal financial assistance to the auto industry, as one claimed that, without assistance, “the automakers will quickly end up in bankruptcy, resulting in liquidation and hundreds of thousands of layoffs at a time,” while another proposed a government-supported bankruptcy of some of the automakers.

Earlier this week, Senate Majority Leader Harry Reid (D-NV) announced that, after review and consultation with the committee chairmen, Congress “will determine at the end of the week the best course to pursue with respect to the auto companies, including whether to move forward with legislation to provide emergency funds.” Additionally, “in order to be in a position to move as quickly as possible on this legislation, if that is the course decided,” Senator Reid intends to “proceed to a shell bill on Monday that could be amended with an emergency-aid package.”

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